Standard Chartered Plc rose as much as 5.1 percent in London after the bank settled a money-laundering probe for $340 million the day before it was due to appear at a hearing to defend its right to operate in New York.
The stock climbed 70 pence to 1,440 pence and was up 4.7 percent to 1,435 pence at 12:05 p.m. for a market value of about 34 billion pounds ($53 billion). The stock is still about 8 percent below its closing price on Aug. 3, the last day of trading before the probe was announced.
Benjamin Lawsky, head of the New York Department of Financial Services accused Standard Chartered of helping Iran launder about $250 billion in violation of federal laws, threatening to remove the London-based bank’s license to operate in the state. That would have hurt Standard Chartered’s ability to process dollar payments for clients in Asia and reduced earnings by about 40 percent, according to Chirantan Barua, an analyst at Sanford Bernstein Research in London.
“Crucially, the settlement eliminates the risk of Standard Chartered losing its banking and clearing license,” Shailesh Raikundlia, an analyst at Espirito Santo Investment Bank in London, wrote in a note to clients today. That “would have significantly impaired their wholesale banking operations, especially transaction banking and trade finance.”
The bank still faces federal probes over allegations it helped Iran funnel money through the U.S. Regulators including the U.S. Treasury, the Federal Reserve Bank, the Justice Department and the Manhattan District Attorney declined attempts at a global settlement, a person familiar with the matter said yesterday. September will be the earliest such a global deal is possible, said the person, who declined to be identified because the matter is private.
The bank could pay as much as $1 billion in fines as it settles with other regulators, according to Simon Morris, a regulatory lawyer at CMS Cameron McKenna in London.
“The implication for Standard Chartered is they have a truce on one battle but four more to fight” with other regulators, he said in an interview on Bloomberg Television today.
A person familiar with the New York probe said Lawsky had sought as much as $700 million to settle the investigation. The cost of settling with all the regulators may be about $700 million, Cormac Leech, an analyst at Liberum Capital wrote in a note to investors today.
“The willingness of the DFS to accept a $340 million settlement sits oddly with its classification, a week earlier, of Standard Chartered as a ‘rogue institution’ at risk of NY license revocation,” wrote Leech who has a buy rating on the stock. “Standard Chartered is now likely to suffer minimal reputational damage with minimal risk of management resignations.”
The quick resolution of the probe was in the best interests of shareholders, clients and employees, Chief Executive Officer Peter Sands said in an internal memo today.
“Our past review did identify mistakes, for which we have apologized,” Sands told employees today, without elaborating on the specific errors, according to the document obtained by Bloomberg News. “There are many reasons why firms settle such agreements,” Sands said. “We have sought to act in the best interests of our shareholders, clients, customers and staff.”
The lender is in talks with the other agencies, Sands said in the note. Melissa Cheah, a Singapore-based spokeswoman for the lender, confirmed that Sands sent a memo to staff.
“We would expect the other regulators to settle in due course, and the fines may be material, but we think the aggregate cost will be below $1 billion,” analysts led by Amit Goel at Credit Suisse Group AG wrote in a note to clients.
Standard Chartered is the latest bank to be fined over money laundering-related issues.
ING Groep NV, the biggest Dutch financial-services company, in June agreed to pay $619 million to settle U.S. charges it falsified financial records to bypass sanctions on countries including Cuba and Iran.
HSBC Holdings Plc, Europe’s largest bank, made a $700 million provision last month for U.S. fines after a Senate committee found the bank gave terrorists, drug cartels and criminals access to the U.S. financial system. That sum may increase, CEO Stuart Gulliver said.
“Standard Chartered has acted with pragmatism and integrity in the face of extreme provocation,” Ian Gordon, a London-based analyst at Investec Plc, wrote in a note to clients today.